A collective enfranchisement initial notice that is served in accordance with Chapter 1 of Part I of the Leasehold Reform, Housing & Urban Development Act 1993 (“the 1993 Act”) remains in force and is therefore binding on the recipient reversioner unless and until the occurrence of one of the three events prescribed by section 13(11) of the 1993 Act, namely, that: (1) a binding contract is entered into for the purchase of the reversionary interests by the participating tenants’ nominee purchaser, or the Court makes a vesting order to vest these interests in the nominee purchaser; (2) the initial notice is withdrawn, or is deemed to have been withdrawn; or (3) the initial notice otherwise ceases to have effect by virtue of any provision of the 1993 Act.
Consequently, the failure to protect the initial notice by Land Registry registration did not prevent the initial notice continuing to bind the reversioner who had: (1) transferred the freehold to his wife (who, for want of registration of it at the Land Registry, took free of it); and (2) then subsequently took a transfer of the freehold back to him.
Where the purchase price has been unconditionally agreed between the parties prior to the agreement or determination of the other terms of acquisition (in this case the terms of a proposed lease-back of a unit) it is not open to either party to resile from that agreement. This was so even though the agreement as to the purchase price was not enforceable as a matter of contractual obligation.
The appeal was dismissed.
The participating tenants served a collective enfranchisement initial notice in 2004. In error the initial notice was not protected by the registration of a unilateral notice against the freehold title until July 2013 (which was shortly before the hearing of an earlier appeal to the Upper Tribunal in this protracted collective enfranchisement claim).
In July 2007 the parties’ respective surveyors agreed the purchase price and certain other terms, though not the entirety of the terms of acquisition. The agreement was recorded in a document that was signed by both surveyors and stated that, in the event of the parties not agreeing the remaining terms of acquisition (being the detailed terms of the proposed lease-back of the first floor flat and garden), either party reserved the right to apply to the LVT (as it then was) for their determination, but that the agreed terms were to remain as agreed regardless of any other terms.
There then followed what the President of the Upper Tribunal described (with some understatement) as years of “determined opposition” to the enfranchisement claim by the reversioner. This included various adjourned and otherwise ineffective hearings before the LVT, an appeal by the reversioner to the Upper Tribunal on the terms of the lease-back (which was withdrawn on the day of the hearing) and the expediency of transferring the freehold to his wife in October 2012 for a nominal consideration and having it transferred back to him by way of a gift in March 2013. In the result there was a hiatus in Mr Curzon’s freehold ownership between October 2012 and 28 March 2013, when he once again became the registered proprietor of the freehold. During this period the initial notice continued to be unprotected by registration at the Land Registry.
There were two issues for determination on the Appeal.
Firstly, where an initial notice served under s. 13 of the 1993 Act has not been protected by being noted on the Land Register, whether the freeholder who received the notice can defeat the right of the participating tenants to acquire the freehold by collective enfranchisement by the simple expedient of transferring the freehold to his wife (or other third party) followed, shortly thereafter, by its transfer back to him?
Secondly, whether, if the price for the freehold is agreed unconditionally between the freeholder and the nominee purchaser, either party may subsequently resile from that agreement and require that the price be determined by the FTT?
As to the first issue, as was common ground between the parties, through want of registration, Mr Curzon’s wife had acquired the freehold free of the obligations arising under the initial notice (ss. 19(2) & (3) and 97). However, the Upper Tribunal held that the initial notice nevertheless remained in force. This was so as none of the events prescribed by section 13(11) had occurred. The initial notice was therefore, by definition, still in force and hence effective as against Mr Curzon, though not against anyone else: protection by registration at the Land Registry was essential in order for the obligations under the initial notice to be transmitted to transferees of the reversionary interest. In the result, once the freehold was transferred back to Mr Curzon, there was no impediment to the nominee purchaser continuing to pursue the collective enfranchisement claim against him in the usual manner.
As to the second issue, perhaps due to the unusually long period that had elapsed since the purchase price was agreed (2007), or perhaps as a means of further delaying the leaseholders’ acquisition of the freehold, Mr Curzon sought to resile from the agreed purchase price, contending, in essence, that a party was free to do so at any time before all of the terms of acquisition had been agreed. This argument was rejected by the Upper Tribunal on the basis that once a term of acquisition has been agreed the FTT no longer has any jurisdiction to determine it: the relevant jurisdiction being limited to the determination of terms “in default of agreement (s. 24(1)). Further “agreed” for the purposes of the statutory scheme did not require a contractually binding agreement, this being implicit as section 38(4) provides that “agreement” for the purposes of the collective enfranchisement provisions of the 1993 Act includes an agreement subject to contract. Hence, a final (in the sense that it is clear that negotiations have been completed and a final agreement has been concluded) and unconditional (in the sense that what has been agreed is not contingent upon the agreement or determination of other terms of acquisition e.g. the terms of the transfer deed) will suffice.
Comment and practice points
The case is an authoritative decision on the operation of procedural provisions that are central to the proper working of the 1993 Act.
Aside from being a cautionary tale on the importance of protecting an initial notice by registration at the Land Registry against the reversionary interests, the decision contains a valuable analysis of the nature of the rights and obligations arising on the service of an initial notice viz. that they are not proprietary rights, but are in the nature of a personal entitlement that accrues to the nominee purchaser as against the recipient of the initial notice and is only transmitted to the reversioner’s successors-in-title if protected by registration (ss. 19(2) & (3) and 97).
When agreeing some, but not all, of the terms of acquisition (e.g. agreeing the purchase price whilst the terms of the transfer deed remain at large), it is essential to be clear whether what has been agreed is independent (or dependent) of what is ultimately agreed or determined in respect of the outstanding terms.
Good practice therefore requires any document recording the agreement of terms of acquisition to expressly state whether, or not, the agreed terms are independent (or dependent) of any, or all, outstanding terms. As to which it is to be observed that, frequently, and avoidably, this is not made clear when partial agreement (particularly as to price) is reached between the parties to an enfranchisement claim. As always competent drafting should avoid uncertainty and the attendant risk of expensive and, possibly, disastrous further litigation.